Business Opportunities How to use crowdfunding

Published on September 19th, 2014 | by Tom Wake

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How to use crowdfunding to turn your ‘big idea’ into reality

How to use crowdfunding

How to fund your next creative project… business opportunity… soon-to-be-world-dominating-start-up… without getting ripped off by banks or smug millionaires using Crowdfunding

I’m sure you’ve heard the term ‘crowdfunding’ before…

It’s become a bit of a buzzword, but unlike most buzzwords it’s grounded in something that’s genuinely exciting, revolutionary even.

Simply put, crowdfunding uses the power of the Internet and Social Media to get individual projects and ideas off the ground financially.

You come up with an idea, post it online and if other people like it they fund you and help get you up and running without having to go to banks, loan sharks or multi millionaire ‘dragons’ sitting in a miserable loft grunting ‘I’m out’.

Let me give you a live example of how it works.

A friend of mine is currently using crowdfunding to raise enough money to shoot a short film in the Lake District. You can see his project here: The Merciless Beauty

He’s a cracking director and I wish him well! We need more independent UK film makers like him.

But it’s not just creative projects that you can use crowdfunding for, you can also use it to get finance for inventions, business startups, non-for-profits, you name it.

Which crowdfunding model is right for you?

There are two different approaches you can take with crowdfunding.

Donation Crowdfunding

This is where you give support to a project because you really believe in it, because you love the idea or because you want to help something get off the ground.

The gain for the funder (apart from an enormous sense of wellbeing) is normally some sort of perk. So they might see their name on the credits if it’s a film… or get the first copy of an item if it’s an invention… the possibilities are endless. The author George R R Martin (author of Game of Thrones) did a crowdfunding campaign recently to raise money for a wolf charity. If you invested $20,000 he promised to write you into his next book– and kill your character off!

Investment Crowdfunding

This is the more business-minded approach where wouldbe investors are offered equity or stakes. The ultimate goal is for the investor to see some sort of financial return.

It’s the newer model but this will explode over the coming months and years (in fact it already is). It’s ideal if you’re looking to create a startup business or invest in or expand your existing business.

How to set up your crowdfunding campaign

Setting up a campaign is extremely straightforward, but if you want to hit your investment target you need to be thorough, ultimately you’ve got to convince someone to part with their money.

Here’s how to go about it…

1) Choose the right platform for you

Are you setting up a new business? Are you bringing a new product to market? Are you launching your new clothing line? Are you raising money for a noble cause? The first thing you need to do is to choose your crowdfunding platform. There are several to choose from (you can see more on the various options further down the page).

2) Draw up a brief

Sketch out your idea in detail and work out exactly how much money you need to get it off the ground. Think about setting up an online scrapbook or Pinterest, you may be able to use it in your marketing later.

It’s important to really drill down your costs and be as transparent as you can (even at this early stage). People aren’t going to invest in something that sounds vague or mysterious and they don’t like surprises.

3) Work out how contributors stand to profit (if at all) from their investment

This is crucial because even if your venture is ‘non-for-profit’ you still need to dangle a carrot to make your opportunity stand out. You’ll need several perks to offer investors according to which level they come in at.

For example you could say that anyone who invests £20 will get a personal letter of thanks… at £100 they’ll get their name in the credits… at £500 they’ll get a signed copy of the prototype etc. Obviously it completely depends on the project. For a business investment you’ll need to work out equity stakes.

4) Draft a detailed, benefit driven pitch

Just like in Dragons’ Den, the pitch is paramount . Make it clear, concise, centralised around the actual business or product, and be sure to include lots of images. People love images – moving and still – so if you can create a video for it, great.

Be engaging – again, like in Dragons’ Den, you often see one or more of the dragons commenting on an entrepreneur, in particular how investible he or she is as a person or team so be passionate!

Your research needs to be thorough and watertight. Make sure you’ve anticipated what investors might want to know about your venture and include it in the pitch.

4) Set up your campaign

Every crowdfunding platform is different, but almost all offer a step-by-step set up process.

The main thing to focus your time on is the content. If you’re struggling for ideas or wording don’t panic! Get inspiration by taking a look at similar campaigns that others have produced.

It’s worth repeating at this stage that how you word your campaign and how you reward would-be investors is essential. In fact it’s make or break. You need to sell your idea and make others (remember they are complete strangers) see your passion and your vision and want to be a part of it.

5) Market it!

Now you just need to spread the word! Share it on Social Media – on Facebook and Twitter and everywhere you can.

Add a sentence about your crowdfunding campaign (and link) to your email signature so that everyone you email sees it. Talk to people in pubs about it, chat to people in relevant online forums (although be careful not to come across as salesy here or you might get a bad press).

Get creative!

8 top crowdfunding platforms where you can get investment for your business, invention, creative project or cause

1. Kickstarter

This is the big one for donation-based projects – particularly for bringing new products or inventions to market. You can list anything on there as long as it’s not for a business idea or a charity. Think ‘cool factor’ with Kickstarter – it’s for that gadget that you always wanted to see invented… or that crazy art installation that normally wouldn’t find investment.

Fees: 5% of total plus payment processing fees (approximately 3% – 5%)

2. Indiegogo

Funnily enough Indiegogo focuses on more ‘indie’ based projects, such as films (like my friend’s project), musical endeavours, anything creative daaahhhling. Like Kickstarter this isn’t an investment platform (you offer funders perks rather than equity). Unlike Kickstarter you can also list charitable campaigns.

Fees: 9% – but you get 5% of that back if you campaign is fully funded (so 4%). Indigogo lets you go ahead even if you don’t reach your top level target

3. Quirky

Calling all inventors! This is a very cool platform that’s more about collaboration than just funding. You submit your idea for a product (it could just be a sketch in the early stages) and it goes into a pool with other peoples’. The Quirky community vote on their favourites and give tips and feedback on how to tweak and improve them. If yours passes muster, Quirky will actually help you manufacture the product and bring it to market. You can browse (and buy) products via their website.

Fees: None! If they develop and take your product to market they’ll discuss profit share with you

4. Crowdfunder

Crowdfunder is the place to go for Dragon’s Den style investment. So rather than perks, you’re offering would be investors stakes, equity or some other financial reward if you then get on board. Crowdfunder’s growth – unsurprisingly – has been stratospheric and I see this type of model as being the future of crowdfunding.

Fees: 5% plus VAT

5. Crowdcube

Crowdcube is based here, in the UK. If you’re looking for investment to expand your existing business, or you’ve got a world beating idea for a start up then it’s worth taking a look here.

Fees: 5% plus payment charges and VAT. You also pay an admin fee of £1,750

6. Seedrs

Another growing UK based investment platform. Again Seedrs very much takes the Dragon’s Den approach, except that you fix the equity levels and it’s configured so that instead of dealing with hundreds of potential shareholders, you only deal with the one.

Fees: 7.5%

7. Funding Circle

Funding Circle are major players and specialise in the funding of business loans. Rather than pitching for equity investors offer straightforward loans. For example you might need a £10,000 loan for your business so you list it on Funding Circle. Investors offer you the money at a fixed interest rate – which they set and you approve.

Fees: 2% – 5% goes to Funding Circle depending on the length and amount of the loan (plus the interest rate set by the lender)

8. Crowdrise

Crowdrise has been specifically set up for charities and good causes. It’s a well thought out platform and you can, for instance, set up a birthday or wedding campaign whereby instead of friends and family buying you presents and gifts they can go onto your campaign and donate to your favourite cause or charity.

Fees: 3% plus card processing fees

Crowdfunding allows little people to do big things

Before the advent of crowdfunding, trying to finance a new venture, business or money-making idea involved asking a bank or a select small group of people for sums of money.

Crowdfunding is a gamechanger. It allows for a large group of people – sometimes thousands – to all contribute a small amount each, via online platforms, which manage and oversee the fundraising. It’s innovation at it’s best.

It’s not perfect but it puts control in the hands of the many and it allows little people to do big things.

Some projects won’t get enough funding and never see the light of day… some will get the funding but then flop… others will facilitate the creation of something truly amazing… and then there are those that will make people a LOT of money.

It’s no surprise that crowdfunding has become such an explosive phenomenon ($2.7 billion was invested in 2012 and almost double that in 2013 according to Massolution).

It’s thanks to the fact that banks aren’t lending to small businesses. The beauty of crowdfunding is that would be investors aren’t necessarily investors in the traditional sense of the word. They can invest a lot less and sometimes the promise of a perk is all that’s required.

If you’ve got a ‘big idea’, now’s the time to take it to the next level. Crowdfunding can help you turn that dream into a reality. Let me know how you get on!

If you enjoyed this article or you’ve got something to add, I’d love to hear from you! Please leave a comment below.


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About the Author

My name's Tom Wake and I'm the editor of Insider's Edge. I bring you tips, tricks and shortcuts to help you save money, make money and save time.



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